In the middle of student debt, student loan scam is one area that has seen a rise that is parallel to the debt level of the students. As the need various federal and private student loans increase, there is an increase as well in the number of thieves and crooks who are out trying to scam unwitting undergraduates and post-college earners out of their already stretched out finances. The scammers know very well that people with student debt are oftentimes in a bind and are more predisposed into believing fancy offers in an instant just to get out of debt.
Asa.org reported that of the 20 million students going to college on a yearly basis, about 60% are relying on student loans to finance their tuition fees as well as money for books as well as for board and lodging. That percentage amount to approximately 12 million students and families having to deal with student loans for college. Borrowing money to sustain the dreams of a better life of the student.
At present, there are roughly 37 million borrowers that are still dealing with outstanding balances. And from this number, a little over five million are facing one student loan payment that is already past due. This is what most people perceive as the bad news with student loan debts, increase in student loan debt with a good number of borrowers either defaulting or dealing with past due payment status with their lenders.
Detecting Student Loan Scam
As the need arises, those that want to take advantage of people in need are also increasing. It could be coming from the simple fact that a person in need is more easily swayed if you promise a ticket out of their mess. In this case, when crooks tell unsuspecting people that they will be able to help them cut the payment significantly in an instant with a few strings attached, the borrower will be all ears.
There are a few things to look out for before taking on the services of any company offering too good to be true assistance. Because chances are high that this is just another type of student loan scam that is meticulously crafted and planned to dupe you out of hard earned money.
Legitimate lenders will not ask for upfront fees. Federal student loans will never collect up-front fees in exchange of being considered for a subsidized loan. Private lenders may assess fees but common practice is that the amount is deducted on disbursement. Even legitimate loan consolidators should not collect up-front fees because they should operate on a performance-based payment.
Moneytalksnews.com shares that some scam companies will disappear after collecting the up-front payments from student loan borrowers. They will disappear as quickly as they came in and since they are not legitimate companies, it will be quite a challenge to track them down let alone have them pay you back for the payments you have made.
Sounds like fishing? This is exactly how this student loan scam works. The thieves are “fishing” information out from you so they can use them for their own interests. This is closely related to identity theft. They ruse you by making you believe you won a scholarship entitling you to some amount of money. But before you get it, you need to put in some sensitive information to prove that you really are the winner.
Some of them would ask for your social security number, credit card details and even bank details. Once the scammers are in possession of all these information, they can assume your identity and start doing more harm than the promised good. The can use those credit card details to purchase items online. They might even be able to debit amounts straight out of your checking account over to another account.
Free money fee
Scholarships and grants are oftentimes referred to as free money in college. This is because in comparison with student loans, free money does not have to be paid back. When dealing with scholarships and grants, remember that it is free money from start to finish. You should never pay any fee to be considered for a scholarship or cough out money in exchange of a list of possible grants you can apply to. This is something you can do on your own for free.
The student debt industry is increasing that debt collectors are raking in hefty sums of money from payments alone. But collecting a fee for scholarship is one clear sign that the one you are looking at is a student loan scam.
It is very crucial that you know how to get in touch with your student loan holder at any given point from the time you take out a loan from them. Some scam companies does not list contact information and would often times just have a post office box. Though having one does not automatically mean that the company is a scam, the lack of a physical address and phone numbers are signs of student loan scam entities.
Interest rate trick
Finaid.org warns student loan borrowers of scam companies offerring very low interest rates for a fee. Federal student loans are manageable compared to private loans where interest rates are based on credit score and a few other metrics. This is one of the reasons private loans are harder to repay because of the interest rates. This is the target of this scam, those with high interest rates. The way it works is that the borrower is offered the chance to lower down their interest rate for a fee. After paying the fee, the company that was supposed to undertake the service disappears.
The Downside to Private Student Loans
Federal student loans still account for the majority of the overall student loan debt. But a good percentage of the total debt includes private student loans. Here are some lookout points before taking on a private loan:
- Interest rates. The private lenders advertise low interest rates. But this does not apply to all. Moneyning.com points out that the low interest rates are reserved for those with great credit scores. This is one of the criterias used by private lenders to assess the starting interest rate.
- Repayment tricks. The most important thing in student loans is to repay them. But it is also part of financial literacy 101 that if you can make extra payments over to loans and debt, do it. If you don’t have extra resources to do it, find a way. It is one way to be financially free at the shortest time possible. But what other lenders do, especially if you have more than one loan with them, is they apply the extra payment on all accounts. This is not a student loan scam but is nonetheless an unfair way of dealing with student loan borrowers.
- Co-signee. Parents are the usual co-signer in private loans. It basically says that whatever the student’s loan obligations are, the co-signee assumes the same responsibility. Defaulting on the student loans does not only mean that the student will have to find a way to pay it back. The co-signee will get the same amount of collection calls and the same will also reflect in their credit score.
Student loan scams are on the rise because of the increasing student loan industry. What student borrowers need understand is that dealing with legitimate companies is the best way to deal with their student loans. Keep an open eye out for companies that are just after your money without the intention of providing the service they are promising
Diana hates debt just as much as you do. She is a finance writer for National Debt Relief. She aims to provide the best information to win the battle against debt.